Elizabeth Morrison v. Ray Berry ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ELIZABETH MORRISON, individually )
and on behalf of all others similarly )
situated, )
)
Plaintiff, )
)
v. ) C.A. No. 12808-VCG
)
RAY BERRY, RICHARD A. )
ANICETTI, MICHAEL D. CASEY, )
JEFFREY NAYLOR, RICHARD NOLL, )
BOB SASSER, ROBERT K. SHEARER, )
MICHAEL TUCCI, STEVEN TANGER, )
JANE THOMPSON, BRETT BERRY, )
SCOTT DUGGAN, CRAVATH, )
SWAINE & MOORE LLP, JPMORGAN )
CHASE & CO., J.P. MORGAN )
SECURITIES, LLC, POMEGRANATE )
HOLDINGS, INC., APOLLO )
INVESTMENT FUND VIII, L.P., )
APOLLO OVERSEAS PARTNERS )
(DELAWARE 892) VIII, L.P., APOLLO )
OVERSEAS PARTNERS )
(DELAWARE) VIII, L.P., APOLLO )
OVERSEAS PARTNERS VIII, L.P., )
APOLLO ADVISORS VIII, L.P., )
APOLLO MANAGEMENT VIII, L.P., )
AIF VIII MANAGEMENT, LLC, )
APOLLO MANAGEMENT, L.P., )
APOLLO MANAGEMENT GP, LLC, )
APOLLO MANAGEMENT )
HOLDINGS, L.P., APOLLO )
MANAGEMENT HOLDINGS GP, LLC, )
APO CORP, AP PROFESSIONAL )
HOLDINGS, L.P., and APOLLO )
GLOBAL MANAGEMENT, LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: February 24, 2020
Date Decided: June 1, 2020
Joel Friedlander, Jeffrey M. Gorris, Christopher P. Quinn, and Bradley P. Lehman,
of FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; OF COUNSEL:
Randall J. Baron and Christopher H. Lyons, of ROBBINS GELLER RUDMAN &
DOWD LLP, San Diego, California, Attorneys for Plaintiff.
Rudolf Koch, Matthew D. Perri, and John M. O’Toole, of RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Adam L. Sisitsky, Lavinia
M. Weizel, Robert I. Bodian, and Scott A. Rader of MINTZ, LEVIN, COHN
FERRIS, GLOVSKY AND POPEO, P.C. New York, New York and Boston,
Massachusetts, Attorneys for Independent Director Defendants.
William B. Chandler III, Bradley D. Sorrels, Lindsay K. Faccenda, and Daniyal M.
Iqbal, of WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware,
Attorneys for Scott Duggan, Defendant.
Patricia L. Enerio, Jamie L. Brown, and Gillian L. Andrews, of HEYMAN ENERIO
GATTUSO & HIRZELL LLP, Wilmington, Delaware, Attorneys for Richard A.
Anicetti, Defendant.
Kevin G. Abrams, J. Peter Shindel, Jr., and Matthew L. Miller, of ABRAMS &
BAYLISS LLP, Wilmington, Delaware; OF COUNSEL: Matthew A. Schwartz and
Joshua S. Levy of SULLIVAN & CROMWELL LLP, New York, New York,
Attorneys for JPMorgan Chase & Co. and J.P. Morgan Securities, LLC, Defendants.
William M. Lafferty, S. Mark Hurd, Thomas W. Briggs, Jr., and Elizabeth A. Mullin,
of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF
COUNSEL: Stuart W. Gold, Richard W. Clary, of CRAVATH, SWAINE &
MOORE LLP, New York, New York, Attorneys for Cravath, Swaine & Moore, LLP,
Defendant.
Kevin R. Shannon and Matthew F. Davis, of POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; OF COUNSEL: Jonathan Rosenberg and Abby F.
Rudzin of O’MELVENY & MYERS LLP, New York, New York, Attorneys for
Apollo Defendants.
John L. Reed and Peter H. Kyle, of DLA PIPER LLP, Wilmington, Delaware; OF
COUNSEL: David Clarke, Jr., of DLA PIPER LLP, Washington, D.C., Attorneys for
Berry Defendants.
GLASSCOCK, Vice Chancellor
This is the current installment of this long-running litigation concerning the
merger/takeover of grocery store chain The Fresh Market, Inc. (“Fresh Market” or
the “Company”) by the Apollo group of equity investors. The rather complex history
of this litigation, as well as the fiduciary duty claims in connection with it that have
survived a motion to dismiss under Rule 12(b)(6), are laid out in some depth in a
prior Memorandum Opinion in this matter, which issued on December, 31, 2019.
What follows below is my resolution of motions to dismiss by the numerous
Defendants charged with aiding and abetting liability with respect to those claims.
The circumstances with respect to each entity so charged are unique, and thus the
results of the motions to dismiss are mixed. My reasoning follows.
I. BACKGROUND
I draw all facts from the Plaintiff’s Verified Second Amended Complaint (the
“SAC”) and documents incorporated therein.1 A full factual recitation is available
in the Memorandum Opinion issued on December 31, 2019.2 That Opinion resolved
the motions to dismiss from those Defendants with fiduciary duties: The Director
Defendants (defined below), Ray Berry, Scott Duggan, and Richard Anicetti. This
Opinion resolves the motions to dismiss from those Defendants facing aiding and
1
Verified Sec. Am. Compl., Docket Item (“D.I.”) 169 (“SAC”). As discussed further below, all
well-pled facts are considered true for the sake of this motion.
2
Morrison v. Berry, 2019 WL 7369431 (Del. Ch. Dec. 31, 2019).
1
abetting claims: Brett Berry, Apollo, J.P. Morgan, and Cravath, as defined below.
This Opinion recites the facts necessary to resolve these remaining motions to
dismiss.
A. The Parties and Relevant Non-Parties
Non-party Fresh Market is a Delaware corporation headquartered in North
Carolina that operates as a specialty grocery retailer.3
Plaintiff Elizabeth Morrison was, at all relevant times, a stockholder of Fresh
Market.4
Defendant Ray Berry was Fresh Market’s Chairman of the Board and former
CEO.5 Defendant Brett Berry, Ray Berry’s son, was a former CEO and Vice
Chairman of the Board.6 Prior to the transaction, Ray and Brett Berry together
owned approximately 9.8% of Fresh Market’s shares, and approximately 22% of
Fresh Market equity after the deal closed.7 Ray Berry’s son-in-law, Michael Barry,
owned approximately 6% of Fresh Market stock prior to the transaction.8
3
SAC, ¶ 25.
4
Id. ¶ 24.
5
Id. ¶ 26.
6
Id. ¶ 27. Brett Berry was not a director, officer, or employee of Fresh Market during any period
relevant to this litigation. See Id.
7
Id. ¶ 2.
8
Id.
2
Michael Casey, Jeffrey Naylor, Richard Noll, Bob Sasser, Robert Shearer,
Steven Tanger, Jane Thompson, and Michael Tucci (collectively, with Richard
Anicetti, the “Directors”) were members of the Fresh Market board of directors (the
“Board”).9
Defendant Scott Duggan was Fresh Market’s Chief Legal Officer and Senior
Vice president – General Counsel.10
Defendant Richard Anicetti, in addition to being a director on the Board, was
Fresh Market’s President and CEO.11
Defendant Cravath, Swaine & Moore LLP (“Cravath”) is a New York limited
liability partnership that served as Fresh Market’s legal counsel for the transaction.12
Defendant JPMorgan Chase & Co., is a Delaware corporation and parent to
Defendant J.P. Morgan Securities, LLC, a Delaware limited liability company.13 J.P.
Morgan Securities, LLC served as Fresh Market’s financial advisor in the
transaction.14 I refer to both Defendants collectively as “J.P. Morgan.”
9
Id. ¶ 28. I granted the Director Defendants’ Motion to Dismiss on December 31, 2019.
10
Id. ¶ 29.
11
Id. ¶ 28.
12
Id. ¶ 30.
13
Id. ¶¶ 30–31.
14
Id. ¶ 31.
3
A constellation of fifteen entities comprise the Apollo Defendants, all of
which I refer to collectively as “Apollo.” Pomegranate Holdings, Inc. is a Delaware
corporation and parent company of Pomegranate Merger Sub, Inc., the company that
merged with and into Fresh Market in the transaction.15 Pomegranate Holdings, Inc.
is controlled by private-equity funds managed by Apollo Management VIII, L.P.
(“Apollo Management VIII”).16 Four separate Apollo investment funds contributed
to the acquisition and retained an equity stake in Fresh Market following the
transaction: Apollo Investment Fund VIII, L.P., Apollo Overseas Partners (Delaware
892) VIII, L.P., Apollo Overseas Partners (Delaware) VIII, L.P., and Apollo
Overseas Partners VIII, L.P.17 The first three are Delaware limited partnerships, the
last a Cayman Islands limited partnership.18 All the investment funds are managed
by Apollo Management VIII.19 AIF VIII Management, LLC, a Delaware limited
liability company, is the general partner of Apollo Management VIII.20 In turn,
Apollo Management, L.P., a Delaware limited partnership, is the sole member and
manager of AIF VIII Management, LLC.21 Apollo Advisors VIII, L.P., a Delaware
15
Id. ¶ 33.
16
Id.
17
Id. ¶¶ 34–37.
18
Id.
19
Id. ¶ 3
20
Id. ¶ 41.
21
Id. ¶ 42.
4
limited partnership, serves as general partner of each of the investment funds.22
Apollo Management GP, LLC, a Delaware limited liability company, is the general
partner of Apollo Management, L.P.23 Apollo Management Holdings, L.P., a
Delaware limited partnership, is the sole member and manager of Apollo
Management GP, LLC.24 Apollo Management Holdings, GP, LLC, a Delaware
limited liability company, is the general partner of Apollo Management Holdings,
L.P.25 APO Corp., a Delaware corporation, is the intermediate holding company
through which Apollo Global Management, LLC holds its interests in various other
Apollo entities.26 AP Professional Holdings, L.P., a Cayman Islands exempted
limited partnership, allows managing partners at Apollo to indirectly beneficially
own a majority interest in each Apollo entity.27
22
Id. ¶ 39.
23
Id. ¶ 43.
24
Id. ¶ 44.
25
Id. ¶ 45.
26
Id. ¶ 46.
27
Id. ¶ 47.
5
B. Factual Background
1. Fresh Market Faces Stock Woes, and Ray Berry Makes an
Agreement with Apollo
After Fresh Market’s CEO departed in January 2015, the Company’s stock
declined over the course of eight months, reducing by more than half.28 In this
atmosphere, Apollo’s Andrew Jhawar reached out to Ray Berry in July 2015 to
discuss taking Fresh Market private.29 In an email to colleagues, Jhawar described
how he “pounced” on the opportunity to discuss a going-private transaction with
Berry, “given valuation and the apparent lack of love from Wall Street and the
analyst community.”30 Berry and Jhawar exchanged several messages and agreed
to speak in September to discuss the potential transaction.31 Berry did not disclose
Apollo’s inquiries to either the interim-CEO or the lead director.32
The Board hired a new CEO, Richard Anicetti, on September 1, 2015.33 On
September 4, Ray Berry contacted Jhawar to put him in touch with his son, Brett
Berry, so they could discuss an equity rollover of the Berrys’ stock.34 Jhawar and
28
Id. ¶¶ 50–51, 53.
29
Id. ¶¶ 55–56.
30
Id. ¶ 56.
31
Id. ¶¶ 58–60.
32
Id. ¶¶ 61–62.
33
Id. ¶¶ 65–66.
34
Id. ¶¶ 68–69.
6
Brett Berry then communicated about potential transaction structures.35 Ray Berry
wrote to Jhawar that he had talked with both Brett Berry and his son-in-law Mike
Barry and that after contacting an attorney, “one of [them]” would contact Jhawar
after they were certain of their position.36
Ray Berry kept Apollo’s interest under wraps.37 On September 24, Brett
Berry sent Jhawar and Ray Berry a theoretical deal summary.38 The next day, Ray
and Brett Berry discussed the potential transaction with Apollo; as proposed, the
transaction would increase the Berry family’s ownership from approximately 9.4%
pre-deal to 28.3% post-deal.39 Both Ray and Brett Berry orally agreed with Apollo
to roll over their equity in the event of a successful Apollo acquisition.40
2. Ray Berry Discloses Apollo’s Interest
On September 25, 2015, Ray Berry told Duggan about Apollo’s acquisition
proposal.41 On September 28, when Duggan had not responded, Berry instructed
Jhawar to contact Duggan directly, which Jhawar did.42 On October 1, Apollo
35
Id. ¶ 68.
36
Id. ¶ 69.
37
Id. ¶ 74.
38
Id. ¶ 75.
39
Id. ¶¶ 75–76.
40
Id. ¶ 76.
41
Id. ¶ 77.
42
Id. ¶ 78.
7
submitted its proposal to acquire Fresh Market at $30 per share.43 The acquisition’s
proposed capital structure, which included an equity rollover with the Berrys, stated,
“Apollo and the Berrys will be working together in an exclusive partnership as it
relates to a transaction with The Fresh Market.”44
The Board called a special meeting on October 15 to discuss a response to
Apollo’s offer.45 Cravath was represented at the meeting by Damien Zoubek, as
Fresh Market’s counsel.46 In advance of the meeting, Berry downplayed to Duggan
his involvement with Apollo.47 Berry told Duggan that he had no involvement
formulating Apollo’s proposal, had no commitment to or agreement with Apollo,
that he was not working with Apollo on an exclusive basis, and that he was unaware
of any contact between Apollo and Brett Berry.48 Neither the Board nor Cravath
inquired further.49 At the meeting, Cravath counsel Zoubek asked Berry if he would
be willing to participate in an equity rollover with an acquirer other than Apollo. 50
Berry maintained he had not committed to a transaction with Apollo, but he told the
43
Id. ¶ 80.
44
Id.
45
Id. ¶ 83.
46
See id. ¶¶ 87–88.
47
Id. ¶¶ 83–84.
48
Id. ¶ 86.
49
Id. ¶ 87.
50
Id. ¶ 88.
8
Board that “he was not aware of any other potential private equity buyer that had
experience in the food retail industry with whom he would be comfortable engaging
in an equity rollover.”51
The day of the board meeting, Apollo sent a follow-up letter regarding its
“proposal (together with Ray and Brett Berry) to acquire” Fresh Market.52 The letter
stated that “Apollo (together with the Berry family rollover) is able and willing to
provide 100% of the equity commitment required in this potential transaction.”53
The letter set a deadline of October 20 for a response to the offer.54 Brett Berry
wrote to Jhawar, “your letter hits the spot.”55 There was a news leak the next day,
and Reuters reported that Berry was searching for a private equity partner to make
an offer for Fresh Market, and Bloomberg reported that Berry was working with
Apollo to explore a buyout.56
3. The Board Puts the Company in Play
The Board decided to publicly announce the commencement of a review of
strategic and financial alternatives.57 On October 20, lead director Noll wrote to
51
Id.
52
Id. ¶ 92.
53
Id.
54
Id.
55
Id. ¶ 93.
56
Id. ¶ 94.
57
Id. ¶ 98.
9
Apollo, “In your letter, you state that Apollo will be working together with the
Berrys on an exclusive basis with respect to a potential transaction. We have
confirmed with Ray Berry that he has no such arrangement with Apollo.”58 On
October 21, Apollo withdrew its bid but continued to engage in discussion with the
Berrys regarding a potential acquisition.59 In its withdrawal notice, Apollo once
again noted the Berrys’ involvement, stating that it was withdrawing “Apollo’s
proposal (together with Ray and Brett Berry).”60 Other communications around this
time—not shared with the Board—demonstrated Apollo’s ongoing relationship with
the Berrys, including sharing and soliciting comments on draft financial models.61
Over a month later, on November 25, in a letter to J.P. Morgan addressed to
the Board, Apollo formally renewed its acquisition offer “together with Ray and
Brett Berry” for $30 per share.62 That same day, Cravath spoke to Ray Berry’s
Counsel, who promised to “provide Cravath with a precise statement about Ray
Berry’s involvement with, and his views about, Apollo’s offer.”63 On November 28,
prompted by Cravath’s inquiries, Ray Berry’s counsel sent an email to Cravath
58
Id. ¶ 100.
59
Id. ¶ 101.
60
Id.
61
Id. ¶¶ 99, 101.
62
Id. ¶ 102.
63
Id. ¶ 103.
10
detailing his history and relationship with Apollo (the “November Email”).64 The
November Email acknowledged that Berry had an oral agreement with Apollo to roll
over his shares if its bid was successful.65 The email confirmed his willingness to
entertain another partner but reiterated his belief that Apollo was “uniquely
qualified.”66 Finally, the email cautioned that Berry would consider divesting his
shares in the absence of a sale.67
The Board met on December 1–2.68 It granted the special committee (the
“Committee”) expanded authority to design a sales process.69 Also at these
meetings, J.P. Morgan provided a discounted cash flow (“DCF”) analysis based on
management’s projections that generated a range of values from $34.50 to $44.00
per share.70 After these meetings, Ray Berry confirmed, through Cravath’s request
on behalf of Fresh Market, (1) a willingness to discuss an equity rollover with a
successful bidder other than Apollo and (2) an agreement not to discuss an equity
rollover with any party until authorized to do so by Fresh Market.71
64
Id. ¶ 104. “Duggan read the November 28 Email in its entirety to the Board.” Id. ¶ 110.
65
Id. ¶¶ 103–104.
66
Id.
67
Id.
68
Id. ¶ 110.
69
Id.
70
Id. ¶ 112.
71
Id. ¶ 114.
11
Apollo signed a confidentiality agreement on December 9, agreeing not to
“initiate or maintain contact” with any director at Fresh Market without the
Company’s express permission.72 On January 5, 2016, however, Jhawar wrote a
purported New Year’s greeting to Berry: “Hopefully, 2016 will be an exciting year
for all of us to do something together.”73 Berry responded on January 8: “We are
anticipating the possibility of an exciting 2016 with us participating together on a
mutually rewarding project.”74 In addition to the New Year’s greeting emails, an
email from Jhawar’s assistant reminded him to call Brett Berry, and so additional
contact between Apollo and the Berry family may have transpired.75
4. The Board Conducts a Sale of the Company
a. The Board Institutes a Bidding Process
Over the course of the sales process, J.P. Morgan contacted thirty-two
potential bidders, twenty of whom signed confidentiality agreements and received
due diligence on Fresh Market, and the Committee met nineteen times.76 Fresh
Market represented to prospective bidders that Ray Berry was open to discussing a
72
Id. ¶¶ 119–20. Jhawar’s call lists and email records suggest he may have violated the agreement
by communicating with the Berrys around this time. See id. ¶¶ 118, 120.
73
Id. ¶ 122.
74
Id.
75
Id. ¶ 124.
76
Transmittal Aff. of Matthew D. Perri in Support of the Independent Directors’ Opening Br. in
Support of their Mot. to Dismiss the Verified Sec. Am. Compl., D.I. 181–84 (“Perri Aff.”), Ex. D,
Schedule 14D-9 (“14D-9”), at 21–22.
12
potential rollover when authorized to engage by the Company.77 Meanwhile,
internal documents from Apollo at this time show that it considered itself partnered
exclusively with the Berrys in the bid for Fresh Market.78
During the bid process, Apollo’s “client executive” at J.P. Morgan, Christian
Oberle, fed inside information on the bid process to Apollo, even though he was not
on the Fresh Market transaction team.79 Earlier, on December 3, 2016, after Apollo
received the confidentiality agreement from J.P. Morgan, along with contact
information for individuals in J.P. Morgan’s M&A Group, Jhawar sent the
information to Oberle and they set up a call.80 Oberle conveyed messages from
Apollo to the J.P. Morgan team working on the Fresh Market transaction and
advocated for Apollo, meanwhile providing Apollo with insights in return.81 For
example, when Jhawar told Oberle to “keep pushing the M&A team on this for me”
on January 6, Oberle responded that he would “do a bit more digging with the
sellside team to see whether there is any flexibility around their current process and
timeline.”82 Oberle communicated messages from Jhawar to J.P. Morgan’s senior
77
SAC, ¶ 124.
78
Id. ¶ 128 (Apollo was “[p]artnered exclusively with the founders”; “We are partnered together
with . . . the Berry Family . . . who would roll $140 million of equity”; “we have maintained a
strong relationship with the Berry family, who will roll over 4.5mm shares into the transaction”).
79
See id. ¶¶ 130–36.
80
Id. ¶ 133.
81
See id. ¶¶ 138–46.
82
Id. ¶ 134.
13
M&A advisor.83 It also appears that Jhawar directly contacted J.P. Morgan’s senior
M&A advisor: he set up a call with Oberle to give him “the download of my
conversation with [J.P. Morgan’s M&A advisor] Anu.”84 This inside information,
according to the SAC, gave Apollo a distinct advantage, including being able to
submit its bid earlier than other parties.85 The SAC does not allege that the Board,
Duggan, Anicetti, or Berry knew about these communications.
On January 25, several parties submitted indications of interest. 86 Apollo’s
was at $31.25 per share.87 After the indications of interest, Oberle championed
Apollo behind the scenes at J.P. Morgan and communicated back to Jhawar
regarding the process.88 J.P. Morgan gave a presentation to the Committee on
February 25 and noted that Apollo continued to be motivated about the transaction,
while other suitors’ interests waned.89 Oberle communicated to Apollo that J.P.
Morgan might be able to “fast-track[] [Apollo] via providing [it] a contract before
others.”90 Ultimately, Fresh Market accelerated the process for Apollo and permitted
83
Id. ¶ 135.
84
See id. ¶ 136.
85
Id. ¶ 146.
86
Id. ¶ 137.
87
Id.
88
Id. ¶ 141.
89
Id. ¶ 142.
90
Id. ¶ 143.
14
it to submit a bid on March 8, ahead of the March 14 date communicated to other
bidders.91 Apollo submitted a definitive proposal of $27.25 per share, four dollars
less than its indication of interest.92 Its bid was not contingent upon an equity
rollover with the Berrys.93 No other suitor submitted a definitive bid.94
Before the Board made a decision, J.P. Morgan provided the Board with an
updated conflicts disclosure that discussed its business relationship with Apollo and
represented that the “senior deal team members” assigned to the Fresh Market sale
were not “currently providing services” to Apollo and were not “member[s] of the
coverage team” for Apollo.95 The conflict memorandum did not disclose Oberle’s
communications with both the Fresh Market team and Apollo’s Jhawar.96 Following
the deal’s close, Oberle and Jhawar would exchange congratulations by email.97
b. The Committee Requests Additional Financial Projections
From December 2015 through the end of the sales process in March 2016, the
Board reviewed several different financial projections. Originally, in December
2015, management provided the Board with a three-year financial model (the
91
Id. ¶¶ 146–47.
92
Id. ¶ 147.
93
Id. ¶ 179.
94
Id. ¶ 147.
95
Id. ¶ 149.
96
Id.
97
Id. ¶ 150–51.
15
“Management Projections”).98 The Management Projections included a “15%
overall risk adjustment . . . based on likelihood of achievability.”99 The Board,
although it perceived execution risks regarding these projections, approved
management’s 2016 operating plan and asked for stretch targets to motivate
management performance.100 Approaching the sale, the Committee requested
“additional scenario analyses . . . in light of the Corporation’s recent business
performance and the risks relating to the Corporation’s ability to execute on its
strategic plan, as well as the trends facing the specialty food retail industry as a
whole” from J.P. Morgan.101 The Committee purportedly based this decision on
“feedback that the Corporation has received throughout the [sale] process from
potential bidders that there was a high degree of perceived execution risk inherent
in the Corporation’s strategic plan.”102 The SAC alleges, however, that “JP Morgan
98
Id. ¶ 153. According to the SAC, it appears management had provided J.P. Morgan with
“downward revised projections” in November, then, after it presented the Management Projections
to the Board on December 1–2, it asked J.P. Morgan to “disregard the downward revised projection
provided to you on November 18.” Id.
99
Id. ¶ 185.
100
Id. ¶¶ 154–57; Perri Aff., Ex. L, Minutes of the Board of Directors Meeting dated December
1–2, 2015, at 18 (Board identifying execution risks in Management Projections); 14D-9, at 20
(same).
101
Id. ¶ 162.
102
Id.
16
gathered recurring positive bidder feedback” and that any hesitancy was based on
other factors.103
That same day, CFO Ackerman advised J.P. Morgan that management “do[es]
not have an updated” long run strategic plan and “still plan[s] to execute against the
previously submitted” Management Projections.104 The next day, management
contacted J.P. Morgan to have a “sensitivity discussion.”105 On March 3, the
Committee met to request that management and J.P. Morgan “refine [sensitivities on
the Management Projections] . . . and develop additional financial projection
scenarios so that the Board would have that perspective when it met to determine
how to respond to any bids that were received.”106 On March 6, Committee member
Naylor asked Duggan when J.P. Morgan would complete the sensitivities, and
Duggan said they would be done “after a proposal is put forward.”107 Ultimately,
management decided to postpone and review what J.P. Morgan developed.108
On March 7—the day before Apollo’s bid submission—J.P. Morgan created
draft sensitivities for unit growth, gross margin, and revenue in response to the
103
Id. ¶ 164.
104
Id. ¶ 166.
105
Id. ¶ 167.
106
Id. ¶ 168.
107
Id. ¶ 170.
108
Id. ¶ 171.
17
Committee’s request.109 The unit growth scenario was an upside case that
contemplated faster growth than the Management Projections.110 J.P. Morgan
submitted these sensitivities to management on March 8, the day of Apollo’s bid.111
Later that day, in the afternoon, J.P. Morgan sent revised sensitivities that excluded
the upside unit growth scenario.112 In addition, it requested confirmation that
“sensitivities to the company projections are prepared by, or at the direction of, and
are approved by the management of [Fresh Market].”113 Raj Vennam, a Fresh
Market finance executive, confirmed twenty-five minutes later.114
On the evening of March 8, J.P. Morgan submitted an additional scenario that
suggested lower values by combining the comparable growth and gross margin
scenarios.115 J.P. Morgan revised and resubmitted the projection scenarios again that
same evening.116 Management confirmed within an hour of receipt.117 The SAC
charts the results of J.P. Morgan’s revisions over March 7 and 8: On March 7, the
109
Id. ¶ 172. The SAC alleges the sensitivities were reviewed internally and adjusted downward
prior to submission to Fresh Market. Id.
110
Id. ¶ 173.
111
Id.
112
Id. ¶ 174.
113
Id.
114
Id.
115
Id. ¶ 175–77.
116
Id.
117
Id. ¶ 176.
18
three initial scenarios provided a range of share value spanning from $27.24 to
$40.12 per share; by the final version on the evening of March 8, the range was
$20.89 to $32.73 per share.118 The March 8 Committee minutes stated,
“Management confirmed that it was preparing more fulsome forecast sensitivities
for J.P. Morgan to use in its valuation analyses.”119
c. The Board Negotiates and Finalizes the Merger
On March 8, 2016, the Committee determined that Apollo’s bid was
insufficient.120 In response, on March 9, Apollo submitted a “best and final” offer
of $28.50 per share, an increase of $1.25 per share over its previous offer.121 At this
point, the Committee decided to allow Apollo to engage in “chaperoned” discussions
with the Berry family, although the price remained confidential.122 Berry wrote to
Jhawar and Brett Berry on March 9: “It is exciting that [The Fresh Market] has
decided to proceed with Apollo. It will be great to hear the full story once we are
cleared to talk. I am looking forward to working with you both to help [Fresh
Market] develop into a viable high growth and profitable retailer. Thanks for all the
work you and the Apollo people did over the past several months . . .”123
118
Id. ¶ 177.
119
Id. ¶ 178.
120
Id. ¶ 179.
121
Id. ¶ 180.
122
Id.
123
Id. ¶ 181.
19
On March 10, the Committee recommended to the Board that it accept
Apollo’s offer for $28.50 per share.124 At that board meeting, Anicetti and
Ackerman described the Management Projections as “an optimistic scenario if every
element of the plan went according to estimates,” and “more of an optimistic case at
this point,” which justified the lower financial scenarios.125 Preliminary results for
first quarter 2016 showed that comparable store sales were in line with the
Management Projections, but new store sales had slightly underperformed.126
Also at the March 10 meeting, J.P. Morgan presented valuation analysis on
the Management Projections as well as three downside scenarios.127 Its downward
revisions were based on (1) an increase in the discount rate, (2) an increase in the
equity risk premium, and (3) a decrease in the terminal year EBITDA.128
Communications at J.P. Morgan regarding the draft scenarios reveal some internal
124
Id. ¶ 182.
125
Id. ¶ 185. As noted above, the Management Projections included a 15% risk adjustment. Id.
126
Id.
127
Id. ¶ 186. The downside scenarios were (1) underperforming sales, (2) worse-than-anticipated
margins, and (3) worse-than-anticipates sales and margins. Id.
128
Id. ¶¶ 187–88. Specifically, J.P. Morgan increased its discount rate from an initial 8.5%-9.5%
range to 9.0%-10.0%. Id. ¶ 187. It based this upward revision on a change in the betas of specialty
retailers. Id. The higher impact change, however, came from the equity risk premium, which it
increased 75 basis points, from a range of 6.0%-7.0% to 6.75%-7.75%. Id. This increase was in
contrast to the supply-side equity risk premium, which decreased from 6.21% for 2015 to 6.03%
for 2016. Id. As a result, the terminal year EBITDA multiple reduced from prior estimations of
seven-to-nine times down to less than five. Id. ¶ 188.
20
skepticism.129 Absent the downward revisions, J.P. Morgan’s DCF analysis of
Management Projections—including the increased discount rate and low implied
EBITDA multiple—implied a valuation range of $33.75 to $42.25 per share.130
The Board met again on March 11 and approved the merger at $28.50 per
share.131 Fresh Market announced the acquisition, including the Berrys’ equity
rollover, on March 14.132 Bloomberg published an article that day noting the
advantages the Berrys and Apollo each provided for the other and speculating that
these advantaged led to an “edge” for Apollo in the acquisition.133
5. Fresh Market Files its 14D-9
On March 25, Fresh Market publicly filed its Schedule 14D-9 (the “14D-9”),
and Apollo publicly filed its Schedule TO.134 Duggan drafted the 14D-9 with
Cravath, and the Director Defendants approved.135 The 14D-9 omitted several facts
that I found to be conceivably material. In addition, the SAC alleges the Schedule
TO contains material omissions because it does not disclose Apollo’s initial call to
129
See id. ¶ 189. J.P. Morgan Managing Director Ben Wallace reviewed drafts of the DCF analysis
and opined that the beta range for the discount rate “isn’t justified” and that the terminal multiples
“all seem low” based on the trading range. Id.
130
Id. ¶ 190.
131
Id. ¶ 191.
132
Id. ¶ 195.
133
Id. ¶ 196.
134
Id. ¶ 198. The 14D-9 incorporated the schedule TO by reference. Id. ¶ 199.
135
Id. ¶ 199.
21
Berry, Berry’s oral agreement, or the “New Year’s” greetings between Berry and
Apollo.136
C. Procedural History
The Plaintiff filed her original Complaint on October 6, 2016 for breach of
fiduciary duty against the Director Defendants, Ray Berry, and Anicetti, and aiding
and abetting against Brett Berry.137 I granted the Defendants’ motions to dismiss on
September 28, 2017.138 The Supreme Court reversed and remanded the dismissal.139
The Plaintiff added claims for aiding and abetting against J.P. Morgan, Apollo, and
Cravath.140 All Defendants moved to dismiss on July 12.141 On December 31, 2019,
I dismissed the Director Defendants, granted in part and denied in part the motions
to dismiss for Duggan and Anicetti, and denied Ray Berry’s Motion to Dismiss. I
reserved decision on the motions to dismiss from J.P. Morgan, Apollo, Cravath, and
Brett Berry. The relevant parties provided supplemental briefing, which concluded
on February 24, 2020, at which time I considered the remaining motions fully
submitted for decision.
136
Id. ¶¶ 205, 209–10.
137
Compl., D.I. 1.
138
Morrison v. Berry, 2017 WL 4317252 (Del. Ch. Sept. 28, 2017), rev’d, 191 A.3d 268 (Del.
2018).
139
Morrison v. Berry, 191 A.3d 268, 275 (Del. 2018).
140
Verified Am. Compl., D.I. 88.
141
D.I. 187–96.
22
II. ANALYSIS
All Defendants have moved to dismiss this action under Chancery Court Rule
12(b)(6).142 In considering such a motion,
(i) all well-pleaded factual allegations are accepted as true; (ii) even vague
allegations are well-pleaded if they give the opposing party notice of the
claim; (iii) the Court must draw all reasonable inferences in favor of the
nonmoving party; and (iv) dismissal is inappropriate unless the plaintiff would
not be entitled to recover under any reasonably conceivable set of
circumstances susceptible of proof.143
However, I do not need to accept “conclusory allegations unsupported by specific
fact” as true, nor must I “draw unreasonable inferences” in the Plaintiff’s favor.144
Additionally, if allegations or documents “incorporated into the complaint
effectively negate the claim as a matter of law,” then I may dismiss the claim.145
The Defendants here—J.P. Morgan, Cravath, Apollo, and Brett Berry—all
face claims for aiding and abetting a breach of fiduciary duty. “A party is liable for
aiding and abetting when it knowingly participates in any fiduciary breach.”146
“Knowing participation” in that breach “requires that the third party act with the
142
Defendant Brett Berry has also moved to dismiss for lack of personal jurisdiction under
Chancery Court Rule 12(b)(2), discussed separately below.
143
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotations
omitted).
144
Thermopylae Capital Partners, L.P. v. Simbol, Inc., 2016 WL 368170, at *9 (Del. Ch. Jan. 29,
2016) (quoting Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011)).
145
Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
146
Chester Cty. Employees’ Ret. Fund v. KCG Holdings, Inc., 2019 WL 2564093, at *18 (Del. Ch.
June 21, 2019).
23
knowledge that the conduct advocated or assisted constitutes such a breach.”147
Therefore, “[i]f the third party knows that the board is breaching its duty ... and
participates in the breach by misleading the board or creating the informational
vacuum, then the third party can be liable for aiding and abetting.”148
In evaluating a typical aiding and abetting claim, the legal analysis is simple
enough: Has the predicate tort occurred? If yes, has the third party, with the requisite
scienter, aided in the commission of the tort?149 A twist occurs where the litigation
is an attempt by former stockholders to hold a third party liable for self-serving
actions that enabled an unfair merger process. The quintessential example is the
conflicted financial advisor who conceals the conflict from the board of directors of
the advisor’s client, the target of the merger. Any direct claim for fraud or breach
of contract belongs to the corporation and passes to the acquirer.150 That entity has,
presumably, little interest in pursuit of such a claim, and may in fact have benefited
from or participated in the wrong. The former stockholders, who have suffered the
147
RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 861–62 (Del. 2015) (quoting Malpiede v.
Townson, 780 A.2d 1075, 1097 (Del. 2011) (citations omitted)).
148
Chester Cty., 2019 WL 2564093, at *18 (quoting Mesirov v. Enbridge Energy Co., Inc., 2018
WL 4182204, at *13 (Del. Ch. Aug. 29, 2018)).
149
See Bay Center Apartments, LLC v. Emery PKI, LLC, 2009 WL 1124451, at *13 (Del. Ch. Apr.
20, 2009) (denying motion to dismiss aiding and abetting fraud claim); Anderson v. Airco, Inc.,
2004 WL 1551484, at *8 (Del. Super. June 30, 2004) (“For harm resulting to a third person from
the tortious conduct of another, one is subject to liability if he . . . knows that the other’s conduct
constitutes a breach of duty and gives substantial assistance or encouragement to the other so to
conduct himself . . . .” (quoting Restatement (Second) of Torts, § 876(b))).
150
See 8 Del. C. § 259(a).
24
loss incurred from the unfair transaction, are without standing to assert the claim,
directly, of the entity in which they held stock. They may, however, bring a claim
for aiding-and-abetting a breach of fiduciary duty. But such a claim is problematic;
the underlying tort to which such a claim would be tied is, logically, the breach of
duty of the directors.151 This is problematic because, in fact, the target directors are
themselves typically the duped parties. Consider a case where a target board’s
ineffective actions in fact-checking the advisor fail to amount to, at a minimum,
“reckless indifference to or a deliberate disregard of the whole body of stockholders
or actions which are without the bounds of reason.”152 In such a situation, the target
directors’ actions do not, on their own, amount to either disloyalty or gross
negligence, so that the directors have not breached duties of care or loyalty.153
Without an underlying tort, can the faithless advisor be held liable for aiding-and-
abetting? If not, this risks a wrong without a remedy.
151
In re Comverge, Inc., 2014 WL 6686570, at *19 (Del. Ch. Nov. 25, 2014) (remarking on the
need to show “evidence of an abuse of trust by the third-party aiders-and-abettors vis-à-vis the
corporate fiduciaries” to prevail on an aiding and abetting claim).
152
Zimmerman v. Crothall, 2012 WL 707238, at *8 (Del. Ch. Mar. 5, 2012) (quoting McPadden
v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008) and citing In re Walt Disney Co. Deriv. Litig., 907
A.2d 693, 749–50 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del. 2006)).
153
One could imagine the aforementioned target’s board of directors phoning their conflicted
financial advisor daily inquiring if the advisor has any conflicts, yet the target board still fails to
uncover the conflict because the advisor has created an “informational vacuum.” See RBC Capital
Mkts., LLC v. Jervis, 129 A.3d 816, 862 (Del. 2015).
25
Our Supreme Court cut away at this Gordian knot in RBC Capital Markets,
LLC v. Jervis.154 In that case, the Court found, liability attached if the advisor, with
the requisite scienter, caused the board to act in a way that made the transaction
process itself unreasonable, under the situational reasonableness standard announced
in Revlon155 and its progeny.156 In other words, where a conflicted advisor has
prevented the board from conducting a reasonable sales process, in violation of the
standard imposed on the board under Revlon, the advisor can be liable for aiding and
abetting that breach without reference to the culpability of the individual directors.
Consistent with this standard, “[t]he advisor is not absolved from liability simply
because its clients’ actions were taken in good-faith reliance on misleading and
incomplete advice tainted by the advisor’s own knowing disloyalty.”157 The
pleading standard a plaintiff must achieve is nonetheless a high one; a plaintiff must
154
129 A.3d 816 (Del. 2015).
155
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).
156
RBC Capital Mkts., 129 A.3d at 849–50; see In re Rural Metro Corp., 88 A.3d 54, 83 (Del. Ch.
2014), aff’d sub nom. RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816 (Del. 2015) (“To satisfy
the enhanced scrutiny test in the M & A context, the defendant directors must establish both (i) the
reasonableness of ‘the decisionmaking process employed by the directors, including the
information on which the directors based their decision,’ and (ii) ‘the reasonableness of the
directors’ action in light of the circumstances then existing.’” (quoting Paramount Commc’ns Inc.
v. QVC Network Inc., 637 A.2d 34, 45 (Del. 1994))).
157
Singh v. Attenborough, 137 A.3d 151, 153 (Del. 2016).
26
plead facts making it reasonably conceivable that the alleged aider-and-abettor acted
with scienter.158
I apply this standard to the aiding-and abetting claims here.
A. J.P. Morgan’s Motion to Dismiss is Denied
J.P. Morgan has moved to dismiss the Plaintiff’s aiding and abetting claim
under Chancery Court Rule 12(b)(6) for failure to state a claim. In the December
31, 2019 Opinion, I dismissed the Plaintiff’s claim for a breach of the duty of loyalty
against the Board. Because a 102(b)(7) clause exculpated the Board from violations
of the duty of care, I did not consider whether the Directors had breached their duties
in this regard. As explained above, however, that fact does not insulate aiders-and-
abettors from liability. Where a financial advisor like J.P. Morgan has knowingly
misled the board in a way that has caused the board to fail to comply with its Revlon
duties, the advisor may be liable for aiding-and-abetting breaches of those duties.159
In her supplemental briefing, the Plaintiff argues that the Board failed to ensure that
the transaction complied with Revlon, and that J.P. Morgan aided and abetted that
158
Id. at 152–53.
159
See RBC Capital Mkts., 129 A.3d at 861–63.
27
failure.160 Further, the Plaintiff asserts that J.P. Morgan aided in creating misleading
disclosures.161
As an initial matter, therefore, it is necessary to resolve whether the Plaintiff
adequately pleads that the Board failed to ensure that the transaction complied with
Revlon. The Plaintiff alleges that “Apollo is a major client of JP Morgan,” having
paid J.P. Morgan over $116 million in fees in the two years preceding the Fresh
Market sale, and thus that J.P. Morgan was “incentivized to facilitate a sale to
Apollo.”162 Prior to closing, J.P. Morgan provided the Board with an updated
conflicts disclosure memorandum regarding its relationship with Apollo. That
memorandum stated that the “senior deal team members” working for Fresh Market
were not “currently providing services” for “member[s] of the coverage team” for
Apollo.163 The Board did not probe further to ask whether any of the Apollo
coverage team were acting as go-between for Apollo and the Fresh Market deal
team. The Plaintiff alleges that “JP Morgan’s conflict memo gave the false
impression to the Board that the Apollo coverage team was distinct from the Fresh
160
Pl.’s Supplemental Br. in Opp’n to Mots. to Dismiss, D.I. 269 (“Pl.’s Supplemental Br.”), at 1–
9.
161
Id. at 7–8.
162
SAC, ¶ 8; see also id. ¶¶ 117 (“a sale process would serve the interest of Apollo, a ‘premium’
relationship for JP Morgan and a powerful repeat player in M&A.”), 130 (“Apollo was a
‘premium’ relationship for JP Morgan and it was a ‘priority within [JP Morgan] to strengthen the
relationship.’”).
163
Id. ¶ 149.
28
Market M&A team, when, in fact, JP Morgan and Apollo were using Oberle as a
conflicted backchannel and intermediary.”164 The Plaintiff supports this allegation
with detailed factual pleadings about Oberle’s role as a point of contact to channel
confidential information to Apollo that arguably gave Apollo an edge in the bid
process.165
In the December 31, 2019 Opinion, I dismissed the allegation that the Board’s
acceptance of J.P. Morgan’s conflicts memorandum was an intentional or bad-faith
dereliction of duty, i.e., that it violated the duty of loyalty for the directors. 166 I
withheld ruling on its implications for the aiding and abetting claim. At this pleading
stage, I find it reasonable to accept the Plaintiff’s inference that although not bad
faith, the Board’s failure to comprehend its financial advisor’s conflict of interest
with the sole bidder conceivably breached duties imposed in the Revlon context.
In order to state a claim, the Plaintiff must also plead facts from which I can
infer that J.P. Morgan aided and abetted such a breach. According to the SAC, J.P.
Morgan permitted Apollo—the lead bidder—substantial contact with J.P. Morgan’s
Fresh Market M&A team both directly and by using its client executive as
intermediary which, I may infer, influenced the bid process in Apollo’s favor. A
164
Id.
165
Id. ¶¶ 130–46.
166
Morrison v. Berry, 2019 WL 7369431, at *16 (Del. Ch. Dec. 31, 2019).
29
conflicts disclosure memorandum that fails to mention these substantive back-
channel communications is, as the Plaintiff puts it, “artfully drafted.”167 From this,
I can infer that J.P. Morgan intentionally disguised its communications with Apollo
and thus knowingly deceived the Board about its ongoing conflicts. If so, it acted
with the requisite scienter to support liability. At this stage, it is also reasonable to
infer that if Apollo actually gained insight and favorable treatment, it may have used
this to its advantage, depriving the Plaintiff of value in the transaction and supporting
damages.
In addition, I find it reasonably conceivable that J.P. Morgan aided the breach
of disclosure violations that, as pled, constituted breaches of the duty of care. As
noted in RBC Capital Markets, an advisor’s “failure to fully disclose its conflicts
and ulterior motives to the Board, in turn, led to a lack of disclosure in the Proxy
Statement.”168 Had J.P. Morgan disclosed its interactions with Apollo, the Board
would have had that information reasonably available, and it is plausible that the
stockholder would find interactions between the buyer and the seller’s financial
advisor during and after the bid process to be material. Of course, these remain
167
Pl.’s Ans. Br. in Opp’n. to the Sell-Side Defs.’ Mots. to Dismiss, D.I. 218 (“Pl. Sell-Side Br.”),
at 55.
168
RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 863 (Del. 2015).
30
inferences, and the exacting standard for aiding-and-abetting liability remains for
trial. J.P. Morgan’s Motion to Dismiss is denied.
B. Cravath’s Motion to Dismiss is Granted
Cravath served the Board as its outside legal advisor in the transaction.
Cravath has moved to dismiss the Plaintiff’s aiding and abetting claim under
Chancery Court Rule 12(b)(6) for failure to state a claim. As noted, I previously
dismissed fiduciary claims against the Board based on the Plaintiff’s theory of a
disloyal sham transaction.169 I also dismissed claims alleging that the Board,
Anicetti, and Duggan intentionally crafted a misleading 14D-9 disclosure.170 I
allowed claims to proceed against the non-directors based on well-pled duty of care
violations regarding the same disclosures.171 Here, I evaluate the Plaintiff’s
allegation that Cravath aided and abetted the duty of care violations I found
reasonably conceivable regarding the negligently drafted 14D-9.
The crux of this claim is Cravath’s scienter. As noted, this prong of the aiding
and abetting claim requires adequately pleading actions in bad faith through which
the aider knowingly advanced the breach.172 This requirement provides advisors
169
Morrison v. Berry, 2019 WL 7369431, at *13–18 (Del. Ch. Dec. 31, 2019).
170
Id. at *18–20, 24, 27.
171
Id. at * 25, 27.
172
RBC Capital Mkts., 129 A.3d at 861–62 (quoting Malpiede v. Townson, 780 A.2d 1075, 1097
(Del. 2011) (citations omitted)).
31
such as Cravath with “effective immunity from due-care liability.”173 To aid and
abet, an advisor must act knowingly. Thus, in light of my dismissal of the loyalty
claims against the Directors, the Plaintiff is reduced to the difficult argument that
Cravath intentionally and knowingly caused the Board to carelessly draft and release
a 14D-9 with material facts omitted. The Plaintiff’s initial theory was that Cravath
knowingly aided the Directors’ disloyal cover-up of a sham transaction—those
allegations have been dismissed. In order to now plead scienter on the part of the
lawyers in this matter, the Plaintiff advances a modified motive: Cravath
intentionally engineered a misleading 14D-9 to hide “what may have been bad
lawyering” on its part to evade potential objections from stockholders and collect its
transaction fee.174 These allegations I find fanciful in light of the law of the case that
the Directors did not breach the duty of loyalty. The nonconclusory allegations
supporting such a claim fall short of well-pled allegations of scienter. The Plaintiff
points to Cravath’s fee—$5.5 million—payable only if the transaction closed, as
well as the fact that Cravath “devoted significant effort to determining the content
of the 14D-9.”175 A contingent fee and hard work on the proxy are unremarkable.
Such conditions apply to virtually any outside counsel in a mergers and acquisitions
173
Singh v. Attenborough, 137 A.3d 151, 152 (Del. 2016).
174
Pl.’s Supplemental Br., at 14–16.
175
Id. at 14–15.
32
scenario. I note that allowing an inference of scienter to stand in such a situation, in
addition to being unreasonable, would work much mischief in the ability of a board
to have confidential and competent advice from legal advisors. I have found only
breaches of the duty of care claims reasonably conceivable against any sell-side
fiduciary Defendant; merely pointing to a fee contingent on closing cannot support
a claim for intentional bad-faith aiding and abetting on the part of the lawyers.
C. Apollo’s Motion to Dismiss is Granted
Apollo has moved to dismiss the Plaintiff’s aiding and abetting claim under
Chancery Court Rule 12(b)(6) for failure to state a claim. As a buyer, Apollo had
the right to work in its own interests to maximize its value.176 At the same time, “a
bidder may be liable to the target’s stockholders if the bidder attempts to create or
exploit conflicts of interest in the board.”177 The Plaintiff alleges that Apollo aided
both Ray Berry’s breaches of his duty of loyalty and the Board’s disclosure-related
breaches. I find that the Plaintiff does not state a claim against Apollo.
176
See In re Comverge, Inc., 2014 WL 6686570, at *19 (Del. Ch. Nov. 25, 2014); Morgan v. Cash,
2010 WL 2803746, at *7 (Del. Ch. July 16, 2010); see also In re Rouse Props., Inc., 2018 WL
1226015, at *25 (Del. Ch. Mar. 9, 2018) (noting that a buyer is “entitled to negotiate the terms of
the Merger with only its interests in mind” and is “under no duty or obligation to negotiate terms
that benefited [the target] or otherwise facilitate a superior transaction. . .” ).
177
RBC Capital Mkts., 129 A.3d at 862 (citing Malpiede, 780 A.2d at 1097 (citations omitted));
see also Gilbert v. El Paso Co., 490 A.2d 1050, 1058 (Del. Ch. 1984), aff’d, 575 A.2d 1131 (Del.
1990) (“[A]lthough an offeror may attempt to obtain the lowest possible price for stock through
arm’s-length negotiations with the target’s board, it may not knowingly participate in the target
board’s breach of fiduciary duty by extracting terms which require the opposite party to prefer its
interests at the expense of its shareholders.”) (internal citations omitted).
33
The Plaintiff argues that Apollo aided Ray Berry in his breach of his duty of
loyalty. In the December 31, 2019 Opinion, I found that Ray Berry used “silence,
falsehoods, and misinformation” about his relationship with Apollo in a way that
conceivably harmed the Company.178 The Plaintiff does not adequately allege that
Apollo participated in this breach. There is no allegation that Apollo knew Ray
Berry withheld from the Board the fact that Apollo had approached him. Instead,
Apollo informed the Board no less than five times that it had partnered with the
Berrys.179 At every juncture—when it submitted its offer, followed up on its offer,
withdrew its offer, and renewed its offer—it reminded the Board that it was acting
together with the Berrys.180 Even after Fresh Market wrote to Apollo stating that it
had confirmed with Ray Berry that he had no exclusive relationship with Apollo,
Apollo continued to state that its offers were “together with Ray and Brett Berry.”181
As I found, “by the time the Board initiated the sale, it had an accurate picture of the
178
Morrison v. Berry, 2019 WL 7369431, at *22 (Del. Ch. Dec. 31, 2019).
179
SAC, ¶¶ 80 (Apollo stating in initial proposal, “Apollo and the Berrys will be working together
in an exclusive partnership as it relates to a transaction with the Fresh Market.”), 92 (Apollo stating
in follow-up letter that its proposal was “together with Ray and Brett Berry” and later in the same
follow-up letter that the proposal was “together with the Berry family rollover”), 101 (Apollo
stating in letter withdrawing its proposal that the proposal was “together with Ray and Brett
Berry”), 102 (Apollo stating in a letter re-submitting the proposal that the re-submitted proposal
was “together with Ray and Brett Berry”).
180
See footnote 179, supra.
181
SAC, ¶¶ 100 (Director Noll’s October 20, 2015 letter to Apollo stating that Ray Berry had
confirmed that he had no exclusive relationship with Apollo), 102 (Apollo’s November 25, 2015
proposal stating it was made “together with Ray and Brett Berry”).
34
landscape. The Board knew that Berry and Apollo had an agreement for an equity
rollover should Apollo succeed in its bid.”182 I cannot reasonably infer that Apollo
knowingly advocated or assisted Ray Berry’s deceptive communications with the
Board.
This finding has implications for the alleged violations of the confidentiality
agreement, as well. Even if Apollo’s cryptic communication with Ray Berry in
January 2016—of the “looking forward to working with you” variety—violated its
no-contact agreement with Fresh Market, it was to re-affirm an understanding about
which the Board was already aware. Ray Berry had revealed to the Board his
agreement with Apollo to participate in an equity rollover should its bid succeed;
Apollo’s confirmation of such a plan could not assist Ray Berry’s breach of keeping
the Board in the dark.
The Plaintiff also asserts that Apollo aided and abetted the Board’s breach of
its obligations to ensure a reasonable sales process, a breach that I have found the
Plaintiff sufficiently alleged was aided-and-abetted by J.P. Morgan. Apollo, the
Plaintiff alleges, reached out to its contact at J.P. Morgan, Christian Oberle, and
through him received updates and exerted influence over the bidding and bid
selection process.183 The Plaintiff argues that because of this, the Directors failed in
182
Morrison, 2019 WL 7369431, at *15.
183
SAC, ¶¶ 130–46.
35
their duty “by not limiting [J.P. Morgan’s] contacts with Apollo,” contending that
“Apollo’s back-channel efforts corrupted the work of [J.P. Morgan].”184 The
Plaintiff does not allege that Apollo knew its contact with J.P. Morgan through
Oberle went undisclosed. She does not allege that Apollo knew anything about J.P.
Morgan’s misleading conflicts disclosure. Therefore, the Plaintiff does not plead
any facts suggesting that Apollo knew the Board was breaching its duties and caused
or attempted to exploit this breach by misleading the Board regarding its contact
with J.P. Morgan. I find, on the facts pled, I cannot reasonably infer scienter.
Without such an allegation, the Plaintiff has failed to state a claim that Apollo
knowingly participated in such a breach by the Board.
Finally, the Plaintiff alleges that Apollo’s disclosures aided and abetted
disclosure-related fiduciary breaches. The allegations that Apollo participated in the
drafting of the 14D-9 are conclusory. The Plaintiff alleges that “Apollo reviewed
and knowingly participated in crafting the false and misleading 14D-9,” and later,
that Apollo “had and exercised the contractual right to review and comment” on the
14D-9.”185 The Plaintiff does not allege any further facts to support the conclusion
that Apollo participated in the drafting or that, if it did, it did so with the intent to
mislead.
184
Pl.’s Supplemental Br., at 11–12.
185
SAC, ¶¶ 199, 225.
36
Similarly, the Plaintiff’s allegations regarding the Schedule TO that Apollo
filed do not state a claim for aiding and abetting. The Plaintiff expressly alleges that
Ray Berry “absented himself from the tender offer disclosure process, so that his lies
. . . would be repeated in the 14D-9, and . . . would not be disclosed in either the
Schedule TO or the 14D-9.”186 If so, this fails to imply aiding and abetting by Apollo
in any disclosure-related breach. The Plaintiff then alleges that Apollo aided the
Board’s disclosure-related breaches because Apollo “conspired with conflicted
advisors to file a false and misleading Schedule TO that was designed to harmonize
with a false and misleading Schedule 14D-9.”187 Such a theory does not comport
with the Supreme Court’s finding in the appeal of this matter that “tension between
the 14D-9 and Schedule TO puts stockholders in the untenable position of
determining which one is accurate,” as well as the finding that the Schedule TO in
fact disclosed “an impression of an agreement” between Apollo and the Berrys,
contradicting the 14D-9.188 Allegations that Apollo intentionally conspired to
harmonize inconsistent documents are not reasonably conceivable.
186
Id. ¶ 217.
187
Id. ¶ 225 (emphasis added).
188
Morrison v. Berry, 191 A.3d 268, 278–79, 285 n.80 (Del. 2018).
37
D. Brett Berry’s Motion to Dismiss is Granted
Brett Berry has moved to dismiss the Plaintiff’s claim under Chancery Court
Rule 12(b)(2) for lack of personal jurisdiction, or, in the alternative, failure to state
a claim under Chancery Court Rule 12(b)(6). I find that this Court lacks jurisdiction
over Brett Berry, and so I grant his motion under Rule 12(b)(2). When faced with a
motion to dismiss pursuant to Rule 12(b)(2), “the plaintiff bears the burden of
showing a basis for the court’s exercise of jurisdiction over the defendant.”189 In
considering a 12(b)(2) motion, the court employs a two-step analysis: “the court
must first determine that service of process is authorized by statute and then must
determine that the exercise of jurisdiction over the nonresident defendant comports
with traditional due process notions of fair play and substantial justice.”190 When
ruling on a 12(b)(2) motion the court may consider the pleadings, affidavits, and any
discovery of record—where no evidentiary hearing has been held, “the plaintiff[]
need only make a prima facie showing of personal jurisdiction and the record is
construed in the light most favorable to the plaintiff.”191
189
Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007) (citing Werner v. Miller Tech. Mgmt., L.P.,
831 A.2d 318 (Del. Ch. 2003)).
Id. (citing Amaysing Techs. Corp. v. CyberAir Commc’ns., Inc., 2005 WL 578972, at *3 (Del.
190
Ch. Mar. 3, 2005)).
191
Id. (internal citations and quotation marks omitted).
38
Brett Berry was a director at Fresh Market from 1985 until March 19, 2014.192
He served as the Company’s CEO from 2007 to 2009, and as Vice Chairman of the
Board from 2009 to 2014.193 His directorial and managerial relationship with Fresh
Market ended prior to any of the events at issue here, however. He is, therefore, not
subject to the jurisdiction of the Court based on statutory consent. The Plaintiff
instead argues solely for a conspiracy theory of personal jurisdiction, “based on the
legal principle that one conspirator’s acts are attributable to the other
conspirators.”194 Under this theory, she asserts that Brett Berry participated in a
conspiracy with Ray Berry and Apollo to take the Company private on the cheap.
Delaware adopted the conspiracy theory of personal jurisdiction in Istituto
Bancario Italiano SpA v. Hunter Eng’g Co.195 Showing personal jurisdiction
through conspiracy requires a plaintiff to make a prima facie showing of the
following elements:
(1) a conspiracy to defraud existed; (2) the defendant was a member of
that conspiracy; (3) a substantial act or substantial effect in furtherance
of the conspiracy occurred in the forum state; (4) the defendant knew
or had reason to know of the act in the forum state or that acts outside
the forum state would have an effect in the form state; and (5) the act
192
Opening Br. of the Berry Defs. in Support of Their Mots. to Dismiss Pl.’s Sec. Am. Compl.,
D.I. 192, Ex. B, Aff. of Brett Berry (“Berry Aff.”), ¶ 13.
193
SAC, ¶ 27.
194
Virtus Capital L.P. v. Eastman Chem. Co., 2015 WL 580553, at *12 (Del. Ch. Feb. 11, 2015)
(quoting Matthew v. Flaakt Woods Grp. SA, 56 A.3d 1023, 1027 (Del. 2012)).
195
449 A.2d 210 (Del. 1982).
39
in, or effect on, the forum state was a direct and foreseeable result of
the conduct in furtherance of the conspiracy.196
As developed in our case law, “the five elements of the Istituto Bancario test
functionally encompass both prongs of the jurisdictional test. The first three Istituto
Bancario elements address the statutory prong of the test. The fourth and fifth
Istituto Bancario elements address the constitutional prong of the test.”197 While a
valid path to jurisdiction, the conspiracy theory of personal jurisdiction is “very
narrowly construed” to prevent plaintiffs from “circumvent[ing] the minimum
contacts requirement.”198
“The first and second Istituto Bancario elements ask whether a conspiracy
existed and whether the defendant was a member of the conspiracy.”199 The
conspiracy need not literally be “to defraud” the plaintiff, though that is the language
used; “in cases involving the internal affairs of corporations, aiding and abetting
claims represent a context-specific application of civil conspiracy law.”200 Thus, the
first question is whether Brett Berry participated in a conspiracy with either Ray
196
Id. at 225.
197
Virtus Capital, 2015 WL 580553, at *12.
198
Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 976 (Del. Ch. 2000) (noting
conspiracy jurisdiction is “very narrowly construed”); Computer People, Inc. v. Best Int’l Grp.,
Inc., 1999 WL 288119, at *6 (Del. Ch. 1999) (noting that conspiracy jurisdiction should not be
used to “circumvent” minimum contacts).
199
Virtus Capital, 2015 WL 580553, at *13.
200
Id. (quoting Allied Capital Corp. v. GC–Sun Hldgs., L.P., 910 A.2d 1020, 1038 (Del. Ch.2006)).
40
Berry or Apollo. That entails examining whether the Plaintiff has stated a viable
claim for a breach of fiduciary duty and Brett Berry’s aiding and abetting that breach,
which would imply the knowing participation in wrongdoing necessary to
conspiracy jurisdiction.
In my December 31, 2019 Opinion, I denied Ray Berry’s Motion to Dismiss,
so the Plaintiff has stated a viable breach of fiduciary duty claim. Earlier in this
Opinion, I found that the Plaintiff has not stated a viable claim that Apollo aided and
abetted Ray Berry’s breach of fiduciary duty. I find that the allegations in the SAC
against Brett Berry are weaker still, and do not support a claim of aiding and abetting.
Based on this, I find that the Plaintiff has not made a prima facie showing of a
conspiracy or Brett Berry’s participation in it.201
Essentially, the Plaintiff alleges that Brett Berry actively participated in the
rollover opportunity created by his father and Apollo. Ray Berry brought his son
into discussions with Apollo regarding the equity rollover, and Brett Berry discussed
potential transaction structures and suggested deal summaries.202 Along with his
father, Brett Berry orally agreed with Apollo to roll over his equity in the event of
an Apollo acquisition.203 He also made efforts to engage Mike Barry in the rollover
201
I note that this conclusion regarding the aiding and abetting claim would also warrant dismissal
under Rule 12(b)(6).
202
SAC, ¶¶ 68–69, 75–76.
203
Id. ¶ 76.
41
discussions.204 When Apollo wrote to the Company following up on its offer and
described its proposed acquisition as “together with Ray and Brett Berry,” Brett
Berry wrote to Apollo that the letter “hits the spot.”205 Prior to the October 15 Board
meeting, Ray Berry told Duggan that he “was not aware of any conversations that
may or may not have occurred with Apollo and Brett Berry,” despite Ray Berry’s
participation in such conversations.206 Then, after Apollo entered its confidentiality
agreement, “Jhawar’s assistant emailed him to call Brett Berry,” and the Plaintiff
alleges “on information and belief” that Jhawar and Brett Berry spoke about the
acquisition in violation of Apollo’s confidentiality agreement.207
From these facts, the Plaintiff argues that “[i]t is reasonably conceivable that
Brett Berry operated as an intermediary with Apollo in order to create plausible
deniability for his father.”208 But such a conclusion ignores the requirement that a
Plaintiff bringing an aiding and abetting claim plead scienter.209 To find a conspiracy
through aiding and abetting, there must be some allegation that Brett Berry knew of
204
Id. ¶ 81.
205
Id. ¶¶ 92–93.
206
Id. ¶ 86.
207
Id. ¶ 124. Brett Berry would sign a joinder to that confidentiality agreement with Apollo
immediately before the transaction closed in March. The Berry Defs.’ Mots. To Dismiss Pl.
Elizabeth Morrison’s Verified Am. Compl., D.I. 139, Ex. B, Joinder Agreement (“Joinder
Agreement”).
208
Pl.’s Supplemental Br., at 16–17.
209
RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 861–62 (Del. 2015).
42
his father’s fiduciary breaches and intentionally aided him in those breaches.
Instead, the Plaintiff merely alleges that Brett Berry took an active part in the
potential rollover transaction with Apollo. Unlike his father, who hid and
downplayed the relationship with Apollo, when Apollo informed the Company that
the deal was “together with Ray and Brett Berry,” Brett Berry sent Apollo an
affirmative response. There are no allegations that Brett Berry knew of his father’s
misinformation to the Board, or that he tried in any way to exploit his father’s
fiduciary breaches. The fact that the Plaintiff believes Brett Berry continued to speak
with Apollo after its confidentiality agreement was in place cannot support a claim
that he intentionally aided and abetted a fiduciary breach it is not alleged that he
knew about.
Without having adequately alleged aiding and abetting against either Apollo
or Brett Berry, I find that the Plaintiff fails to make a prima facie showing that a
conspiracy existed or that Brett Berry participated in that conspiracy. As such, the
first two elements of the Istituto Bancario test are not met, and there are insufficient
grounds to exercise personal jurisdiction over Brett Berry under a conspiracy theory
of personal jurisdiction.210 I therefore grant his Motion to Dismiss under Rule
12(b)(2).
210
The Plaintiff offered two acts by Brett Berry to support her contention that he could have
expected to be brought into court in Delaware and thus satisfy the constitutional prong. See Pl.’s
Answering Br. in Opp’n to the Buy-Side Defs.’ Mots. to Dismiss, D.I. 217, at 52; Plaintiff’s
43
III. CONCLUSION
Based on the foregoing, J.P. Morgan’s Motion to Dismiss is denied. Cravath’s
Motion to Dismiss is granted. Apollo’s Motion to Dismiss is Granted. Brett Berry’s
Motion to Dismiss is granted. The parties should confer and submit an appropriate
form of order consistent with this Memorandum Opinion.
Supplemental Br., at 17. At various points in argument and briefing, however, the Plaintiff also
seemed to suggest these acts might themselves support personal jurisdiction. For the sake of
completeness, I address them briefly. First, the Plaintiff contends that Brett Berry “signed a
rollover agreement with a Delaware forum selection provision.” Pl.’s Buy-Side Br., at 52.
However, Brett Berry signed that in his capacity as trustee for a trust, not personally. Opening Br.
of the Berry Defs. in Support of Their Mots. to Dismiss Pl.’s Sec. Am. Compl., D.I. 192, Ex. C.,
Rollover, Contribution and Exchange Agreement (“Rollover Agreement”), at 14. Because he was
not a party to the Rollover Agreement, it would not form the basis for personal jurisdiction.
Second, Brett Berry signed a Joinder Agreement to Apollo’s confidentiality agreement with Fresh
Market. Under that agreement, Brett Berry agreed that he “shall be directly liable to Apollo for
any direct or indirect breaches of the Confidentiality Agreement.” Joinder Agreement, at 1. The
Joinder Agreement has a Delaware forum selection clause. Id. The Plaintiff, a non-party to the
Joinder Agreement with no rights under it, cannot use its forum selection clause to establish
personal jurisdiction. In sum, even if the Plaintiff argued these alternatives constituted
independent grounds for personal jurisdiction, they would be insufficient, and I consider them only
as they relate to the conspiracy theory of jurisdiction.
44